Implicit Price Deflator

• Table of Implict Price Deflator for Personal Consumption Expenditures
• Table of Historical Increases in the July Implicit Price Deflator for Personal Consumption Expenditures

Posted: September 23, 2009

The Change in the Implicit Price Deflator (IPD) from July 2008 to July 2009 Is -0.848 Percent

The Department of Revenue (DOR) has received information on the July implicit price deflator for personal consumption expenditures from the Bureau of Economic Analysis of Department of Commerce. (DOR had to call Washington D.C. to get the data. The September issue of the Survey of Current Business did not include the data this year because of space constraints.) It is 109.270. This represents a 0.848 percent decrease compared to the revised July 2008 index number of 110.205.

Here is the math. Divide the July 2009 index (109.270) by the July 2008 index (110.205). Subtract 1 and multiply by 100. The result is -0.848 percent.

So, What Does This Mean for our Property Taxes?

• For jurisdictions with a population of less than 10,000, the maximum allowable levy increase for 2010 is one (1) percent of the 2009 levy, the same as it has been since Initiative 747 was passed in 2001, plus new construction, improvements to property, newly constructed wind turbines, increases in the value of state-assessed property, annexations, and refunds.
  
  This negative change does not affect them. They should just pass their levy ordinance and their ordinance/resolution, stating their increase in dollars and percent as they always do. (Check the steps on pages 5-10 in A Revenue Guide for Washington Cities and Towns. All the information on these pages applies to counties and special districts also.)



• For jurisdictions with a population of 10,000 or over, the limit factor is the lesser of 101 percent or 100 percent plus "inflation." "Inflation" is measured by the change in the implicit price deflator for personal consumption expenditures for the most recent twelve months, ending in July. RCW 84.55.005(1). Since, for this year, "inflation" is a negative number, the latter measure produces a figure of 99.152 percent ( 100.00 - 0.848 = 99.152) and that is less than 101 percent, the limit factor for the 2009 levy is 99.152 percent.
  
  Levies for new construction, improvements to property, newly constructed wind turbines, increases in the value of state-assessed property, annexations, and refunds are added to this amount.
  
  To levy more than this (up to a maximum of 101 percent), they must make a finding of "substantial need." They submit this to their assessor along with their levy ordinance and their ordinance/resolution, stating their increase in dollars and percent. (Check the steps on pages 5-10 in A Revenue Guide for Washington Cities and Towns. All the information on these pages applies to counties and special districts also.)

Making a Finding of "Substantial Need"

RCW 84.55.0101 provides no definition of "substantial need." It does provide that making such a finding will allow a taxing jurisdiction to levy an amount up to one percent more than the previous year. A vote of a majority plus one is required. For jurisdictions with legislative authorities of four members or less, two-thirds of the members must approve the ordinance/resolution. A sample resolution is provided here.

For Further Information:

If you wish to know more about negative IPDs and limit factors, see:

• "Determining the Limit Factor for Increases in Property Tax Levies," Property Tax Special Notice April 22. 2009.
• "Levy Limit Factor Questions That Arise When the Implicit Price Deflator (IPD) is a Negative Value," Washington State Department of Revenue, October 2009.

More on Your Levy, Making a Finding of Substantial Need, and Banking Capacity

(Only applies to jurisdictions with a population of 10,000 or more)

MRSC wrote about the negative implicit price deflator and making a finding of substantial need for next year's levy on September 23. (Scroll up to review this discussion. The following comments assume you have read this.) The Department of Revenue also drafted some questions and answers in October, Levy Limit Factor Questions That Arise When the Implicit Price Deflator (IPD) is a Negative Value.” However, we are hearing that people from jurisdictions with a population of 10,000 or more have more questions about levy limits and making a finding of substantial need. That's not surprising. This is a complicated issue. Therefore, we are providing some more examples.

Let's start by taking a look at section 1 of the sample substantial need resolution we provided. We are reprinting it below so you won't have to flip between pages.

Section 1. A finding is made of substantial need under RCW 84.55.0101, which authorizes the use of a limit factor of _______________(101 percent or less) for the property tax levy for 2010.

To decide what number you want to put in that blank as your "limit factor," look at the following situations. Remember this resolution (or ordinance, if you prefer) must be passed with a vote of a majority plus one is required. For jurisdictions with legislative authorities of four members or less, two-thirds of the members must approve the ordinance/resolution.

1. You want to levy 1 percent more in 2010 than you did in the current year (plus new construction, etc.)
   • Establish a limit factor of 101 percent when you pass your finding of substantial need resolution with a supermajority vote.
   • In your resolution for RCW 84.55.120, show an increase of 1 percent and however many dollars that amounts to.
2. You want to levy a bit more in 2010 than you did in 2009, say 0.6 percent, (plus new construction, etc.) and bank the remaining 0.4 percent.
   • Establish a limit factor of 101 percent when you pass your finding of substantial need resolution with a supermajority vote.
   • In your resolution for RCW 84.55.120, show an increase of 0.6 precent and however many dollars that is.
3. You want to levy exactly the same amount in 2010 as you did in 2009 (plus new construction, etc.) and bank one percent.
   • Establish a limit factor of 101 percent when you pass your finding of substantial need resolution with a supermajority vote.
   • In your resolution for RCW 84.55.120, show an increase of 0 percent and $0.
4. You want to levy exactly the same amount in 2010 as you did in 2009 (plus new construction, etc.) and not bank any amount.
   • Establish a limit factor of 100 percent when you pass your finding of substantial need resolution with a supermajority vote.
   • In your resolution for RCW 84.55.120, show an increase of 0 percent and $0.
5. You want to levy the same amount in 2010 as you did in 2009 (plus new construction, etc.) but your council/commission does not want to make a finding of substantial need.
   • In order for you to levy the same amount, the limit factor must be 100 percent. Because the change in the implicit price deflator this year was negative, -0.848 percent, the default limit factor is 99.512 percent. To get up to 100 percent, you must have 0.848 percent banked capacity from past years for your assessor to use. (If you don't have any banked capacity, you have to use the limit factor of 99.152 percent unless you make a finding of substantial need.)
   • In your resolution for RCW 84.55.120, show an increase of 0 percent and $0.

If you still have questions about your levy, give us a call. Also, the Department of Revenue recently gave a training session to the county assessors on issues involving these resolutions and they should be ready to help you through the process.

And remember, in addition to these resolutions, you also need to pass the levy ordinance itself!!

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